CRPC Practice Exam 1
1. A fundamental duty owed to a client is to always look out for what is in the client's best
interest, what fiduciary duty best personifies this? - ANS-duty of loyalty
2.
3. The fiduciary duty that best personifies looking out for the client's best interest first is the
fiduciary duty of loyalty. This duty requires being loyal to the client first and foremost, and
always looking out for what is in their best interest.
4. A lump sum payment of the proceeds of a life insurance policy that is made to the
beneficiary upon the insured's death - ANS-is generally exempt from income taxation.
5.
6. The lump sum proceeds of a life insurance policy (even if a MEC) paid to a beneficiary
are generally exempt from income taxation. Withdrawals and loans from a MEC may be
taxable. Life insurance proceeds, however, are subject to estate taxes if the deceased
owned a life insurance policy. If the deceased owner was also the insured, the death
benefits are included in his estate. If the deceased owner is not also the insured, the
current value of the policy is in the deceased owner's gross estate.
7. A Medicare Part A patient must pay - ANS-The patient must pay all costs related to a
hospital stay beyond 150 days. The annual deductible describes a gap in Medicare Part
B coverage, not Part A. Medicare pays for the cost of the first 60 days in a hospital, but
the patient must pay the Part A deductible. Medicare will pay the approved charges for
the first 20 days in a skilled nursing facility. The gap results from the cost of care that
exceeds 20 days (the patient pays the per day copayment) or the need for custodial
care.
8. A springing durable power of attorney: - ANS-A) is usually created in a person's
revocable trust.
9. B) gives the attorney-in-fact authority only when the principal becomes incompetent.
10. C) remains effective after the principal's death.
11. D) remains effective after the principal becomes incapacitated.
12.
13. --B
14. The very purpose of any durable power of attorney is to give the attorney-in-fact
authority to act after the principal becomes incapacitated. However, such authority does
not survive the principal's death. Such authority is created in an independent document
(not part of a living will or a living trust), and is effective immediately in this type of power
of attorney. A springing durable power of attorney becomes effective when the principal
becomes incompetent or incapacitated.
15. Adjusted Gross Income (AGI) - ANS-Is defined as gross income minus adjustments to
income. Gross income includes your wages, dividends, capital gains, business income,
retirement distributions as well as other income. Adjustments to Income include such
items as Educator expenses, Student loan interest, Alimony payments or contributions to
, a retirement account. Your AGI will never be more than your Gross Total Income on you
return and in some cases may be lower. Refer to the 1040 instructions (Schedule 1) for
more information.
16. If you are filing using the Married Filing Jointly filing status, the $72,000 AGI limitation
applies to the AGI for both of you combined.
17. To e-file your federal tax return, you must verify your identity with your AGI or your
self-select PIN from your 2019 tax return.
18. All of the following are reasons reverse mortgages may become more common in the
future except:
19. A)reverse mortgage fees must be rolled into the loan.
20. B)reverse mortgages are a potential tool for combating sequence of return risk.
21. C)many older Americans have large amounts of equity in their homes but lack liquid
assets capable of sustaining their lifestyle.
22. D)government regulatory changes in 2013 standardized Home Equity Conversion
Mortgage (HECM) rules to a great extent. - ANS---A
23. Fees may be rolled into the reverse mortgage, but that is not required. Until the late
1990s American tax law had strong incentives to purchase ever more expensive homes.
This effect lingers on today. Next, people have to live somewhere. Buying a home is a
forced savings plan as the mortgage is repaid each month. In addition, increases in
home prices over time help accrue wealth. Reverse mortgages have the potential to fight
sequence of return risk in several ways. First, reverse mortgage loans can pay off the
original mortgage and thus eliminate the need for the original mortgage amount each
month. Lowering income needs reduces the monthly need. Reducing the monthly need
takes pressure off the portfolio. Also, money from a reverse mortgage is tax free (like all
other loans received). Additionally, during a market downturn, monthly payments from a
reverse mortgage can be substituted for portfolio withdrawals. In fact, the monthly
reverse mortgage amount can be smaller than the normal withdrawal from a non-Roth
retirement plan because the amount of income tax required with the retirement plan
withdrawal is not needed when the monthly income is coming from a reverse mortgage.
24. All of the following are ways that a person can voluntarily transfer estate assets to
another person or entity at death except:
25. A) by will substitute.
26. B) by gift.
27. C) transfer on death (T.O.D.).
28. D) by probate. - ANS--- B
29. Probate and will substitute are ways that a person can voluntarily transfer estate assets
to another person or entity at death. Gifting is one of the two ways that a person can
voluntarily transfer estate assets to another person or entity during life, not at death.
T.O.D. passes the brokerage account to the named person when the owner of the
account dies. P.O.D. (payable on death) transfers a bank account in the same way.
30. All of the following assets would be included in a decedent's gross estate except -
ANS---the proceeds from a life insurance policy on the decedent that was always owned
by the decedent's spouse, with the spouse as the named beneficiary.
31.
, 32. Because the decedent never owned this policy, and his estate is not the beneficiary,
these proceeds are not included in the decedent's gross estate.
33. The decedent's retained right to income in option c. causes inclusion. The decedent
owned an interest in the residence at death, and therefore his interest must be included
in his gross estate. If the decedent assigned incidents of ownership in this policy within
three years of death, the proceeds must be included in the decedent's gross estate.
34. An income-tax-penalty-free distribution cannot be made from a tax-sheltered annuity
(TSA) until the employee does which of the following? - ANS-I. separates from service
after attaining age 55
35. II. attains age 55
36. III. becomes disabled or dies
37. IV. takes a distribution under most hardship withdrawal rules
38.
39. -- I, II, III, IV.
40.
41. Penalty-free distributions can be made from a TSA or 401(k) when an employee
separates from service after attaining age 55, attains age 59½, becomes disabled or
dies, or takes a hardship distribution for deductible medical expenses only. All other
hardship withdrawals are subject to early withdrawal penalty rules. Attaining age 55
means the worker is 55 on December 31 of the year of separation-not that the worker
was 55 on the day of separation.
42. An investment policy provides guidelines that are standards to be followed. If they are
fluid, they are ever-changing and therefore would be difficult to implement and would
provide inconsistency in the management of the portfolio. - ANS-A) tactical.
43. B) alpha.
44. C) core/satellite.
45. D) strategic.
46.
47. --B
48. Alpha is not an asset allocation strategy, but a way to measure a portfolio manager's
return relative to the amount of risk that has been taken.
49. Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take? - ANS-A) analyze information
50. B) gather data
51. C) make and implement recommendations
52. D) monitor performance
53.
54. --B
55.
56. When the client's circumstances change, the asset management process goes back to
the data gathering step in the process.
